Economics this year's last Nobel prize award

Sunday, October 11, 2009 | 4:40 p.m. CDT

BY
LOUISE NORDSTROM/AP Business Writer

STOCKHOLM — As the globe grapples with the problem of greenhouse gases and tries to restore the battered economy to health, research into the economics of climate change or the key to what truly makes consumers tick could be contenders for this year's Nobel prize in economics.

The last of the six Nobel prizes announced this year, the Nobel Memorial Prize in Economic Sciences to be announced Monday is not among the original awards and was created in 1968 by the Swedish central bank in Alfred Nobel's memory.

If history is any guide, being American and male is no hindrance to winning. Since 1980, the prize has gone to American winners 23 times. No woman has won the prize since it was first awarded in 1969.

Though the prize committee most often chooses to reward older research that has stood the test of time, relatively new work on consumer thinking from Austrian Ernst Fehr, a behavioral economist of the University of Zurich, is running high in the speculation debate.

Matthew Rabin, a 45-year-old American at the University of California at Berkeley with similar interests, is also mentioned frequently.

Fehr's research backs up the adage that revenge is sweet. Fehr found that the part of the human brain associated with satisfaction was more active when people contemplated getting even.

An elaborate laboratory game was structured so that players would earn the most money if they trusted their partners and parted with their money. Players were offered the option of seeking revenge by fining double-crossers but were warned that doing so would cost them.

"In the end, what we have shown is that reward circuits in the brain are activated when people can punish the other person," Fehr said. "People don't gain something in economic terms — they get something in psychological terms."

Rabin has studied the economics of immediate gratification, and the implications of people's self-control problems for consumer choice, marketing, incentive theory and addiction.

Other favorites include professors Martin Weitzman of Harvard University and Yale University's William Nordhaus, who have made contributions to the economics of climate change, mainly shedding light on how to use cost-benefit analysis to help shape policy decisions.

Microeconomist Bengt Holmstrom at the Massachusetts Institute of Technology is also among the favorites for his research into the design of contracts and how that can shape long-term incentives.

Anil Kashyap, professor of economics and finance at the University of Chicago's Graduate School of Business, said that Holmstrom, along with Stanford University's Paul Milgrom — known for his contributions to the theory of auctions — have "done path-breaking work on those topics."

But, experts warn about speculating too much about contemporary research. Despite current events, the Nobel economics prize is rarely linked to recent findings and contemporary economic swings, said Hubert Fromlet, a professor in International Economics at the Jonkoping International Business School in Sweden.

"They absolutely don't, in any way, have to serve as guides," he said of lists trying to pick the winner.

Fromlet, whose own top choices include Robert Barro of Harvard, one of the founders of new classical macroeconomics, and Paul Romer of Stanford, who studies economic growth, said economic prize laureates usually have put in decades of work so that their findings have had enough time to be tested.

"Economy isn't always an exact science," he said. "You want experience, and that experience should be around 20 years, and so young researchers usually have to wait a while."

"You don't in the future want to have to admit that today's credible results don't last the long haul."

Paul Krugman, the Princeton University scholar, New York Times columnist and unabashed liberal, won the prize last year for his analysis of how economies of scale can affect international trade patterns.

Nobel Prize winners receive 10 million Swedish kronor ($1.4 million), a gold medal and a diploma from the Swedish king on Dec. 10, the anniversary of Nobel's death in 1896.

Last week, American scientists Elizabeth H. Blackburn, Carol W. Greider and Jack W. Szostak shared the Nobel Prize in medicine for discovering a key mechanism in the genetic operations of cells, an insight that has inspired new lines of research into cancer.

The physics prize was split. Charles K. Kao, who helped develop fiber-optic cable, won half the award, and Americans Willard S. Boyle and George E. Smith, who invented the "eye" in digital cameras, split the other half.

Americans Venkatraman Ramakrishnan and Thomas Steitz, and Ada Yonath of Israel shared the chemistry prize for their atom-by-atom description of ribosomes.

Romanian-born German writer Herta Mueller won the literature prize, and on Friday, President Barack Obama was named this year's winner of the peace prize.